FCC Approval Of Zero Rating Shows Companies Can Still Violate Neutrality Under New Rules, They Just Have To Be More Clever About It

from the it's-neutral-if-I-say-it-is dept

We've discussed more than a few times the awful precedent set by AT&T's Sponsored Data effort, which involves companies paying AT&T to have their service be exempt from the company's already arbitrary usage caps. While AT&T pitches this as a wonderful boon to consumers akin to 1-800 numbers and free shipping, as VC Fred Wilson perfectly illustrated last year, it tilts the entire wireless playing field toward companies with deeper pockets that can afford to pay AT&T's rates for cap exemption.

So how will the FCC's new net neutrality rules impact AT&T's plans? There's every indication it won't. The rules are still a few years and a few legal challenges away from becoming tangible, and in the interim, the FCC is telling companies that none of the zero rated efforts currently in play should be impacted. Meanwhile, the Netherlands, Slovenia, Norway, Chile and now Canada all realize the threat posed by zero rated apps and have passed net neutrality rules that outlaw zero rating. The FCC, in contrast, has consistently implied it sees zero rating as "creative" pricing.

That's given AT&T the justifiable confidence to sally forth with its dangerous precedent. After all, injecting a gatekeeper like AT&T (with a generation of documented anti-competitive abuses under its belt) right into the middle of the wireless app ecosystem won't hurt anyone, and has nothing whatsoever to do with net neutrality. Isn't that right, AT&T?:

"AT&T mobile and enterprise CEO Ralph de la Vega characterized the effort as a billing method and not a speed issue, which could be interpreted as a violation of neutrality. He said his initial belief is that the net neutrality policies passed by the FCC last week won’t impact the company’s plans. "It never was an issue of net neutrality,” he said. “I’m very pleased it looks like that will not be impacted."

My guess is that the FCC is going to be so busy trying to appease all of the folks fanning their faces over "heavy handed government regulation," that it will probably give ample leeway to services like this. And that's a problem. As I've noted a few times, AT&T, Verizon and Comcast are smart enough to avoid ham-fisted neutrality abuses like outright blocking or throttling services, and U.S. telecom regulators have already shown they're perfectly ok with all manner of anti-competitive behavior -- provided you pony up a half-assed technical justification for plausible deniability.

U.S. regulators haven't seriously batted an eyelash over any of these. Are these anti-competitive? Are they net neutrality issues? If we agree net neutrality is about preventing gatekeepers from abusing their dominant market position to hurt smaller companies, then aren't these all at least part of the broader conversation? With ham-fisted throttling and blocking off the table, ISPs and cable companies have shifted their focus to abusing gatekeeper power without looking like they're abusing gatekeeper power. If a company's really good at it, it can even trick consumers into rooting against their own best self interests (all the Redditors who don't understand the bad precedent set by T-Mobile's Music Freedom plan are a great example of this).

So again, while it's great the FCC grew a rare spine and crafted tougher net neutrality rules that are legally defensible, they won't mean much if the FCC isn't willing to be as consistently creative and aggressive in enforcing the rules -- as carriers are going to be when in comes to tap dancing around them.

Reader Comments

All these free plans are far from free, the ISP is taking more money off of their customers indirectly, by charging the content provider who has to get their customers to pony up what they are charged..

Market Discipline

It’s not the “zero rating” that’s the problem; it’s the data caps and over-quota charges—which, as Techdirt often notes, are in turn just symptoms of lack of competition.

When you can’t treat the disease, it often makes sense to treat the symptoms... but you still want to get as close to the problem as possible.

Imagine that there were perfect competition among broadband providers. Data caps and over-quota charges, if they existed at all, would have to reflect real operating costs. “Zero rating” would then represent shifting some of those costs from the consumer to the service (for which the consumer also pays in some fashion). Large, established content providers might then be able to avail themselves of some business models not available to small independents... but that’s always the case.

What makes this a problem is that there is no competition to constrain the use of data caps and over-quota charges. The FCC shouldn’t bother with zero rating; it should require last mile providers to demonstrate that consumer-facing impediments like data caps and over-quota charges reflect real costs of doing business, and do so in the fairest and least disruptive feasible way. Where market discipline is absent, effective regulation must stand in for it.

Re: Market Discipline

I'd vote this Insightful 100 times if I weren't too lazy to go find a list of anonymous proxies.

Zero rating is nothing more than a way to condition people. We'll all get so caught up in being happy about how much we're saving on our ZR services, we'll eventually forget to question the need for caps in the first place.

Big gov't again picks winners & losers

Given Tom Wheeler's previous work with Comcast, he surely was knowledgeable with the important issues pointed out by OpEd contributors. What concerns me is that the supposed "net neutrality" protection offered by the FCC fails to honestly define itself as part of a bigger "open and free Internet" that makes possible access to all and that has become a beacon for democracies around the world.

After months of silence, President Obama latched onto an opportunity to regulate the Internet, capitalizing on the residual "throttling" and "prioritization" angst felt by Americans following the January 2014 Verizon court case decision. The President helped enhance his popularity among Americans with whom he had fallen in to disfavor by declaring that he would enforce "net neutrality." Theoretically FCC agencies are supposed to operate impartially, but the President placed pressure on Wheeler to move beyond initial hesitations and commit to a constitutionally questionable plan of action.

The President also wanted to collect $16 billion in fees for a federally funded project. Additionally, though, states and localities would be able to collect taxes on mobile phone broadband,thereby increasing mobile phone costs by 22% and more.

Gradually, American are understanding that important tenents of a "free and open Internet" have been violated. For one, the FCC Title II solution hurts the disadvantaged who mostly rely on their cell phone to access the Internet. Denying them access to free content further adds insult to damage. In fact, doing so censors the Internet, something I'm wondering might anticipate the President's desires to treat political content on the Internet as it's done on TV (the FEC Commissioner has already come public about this intent).

Our "free and open Internet" would become stymied in other ways because by making it much tougher for smaller ISP and Internet of things businesses to launch their endeavors. In order to obtain approval from a slew of bureaucrats, costly lawyers would be required to interpret and comply with the complicated and nuanced FCC Title II reclassification of the Internet as a utility. The reclassification achieved by forbearing inapplicable rules that were intended for 1930s utilities.

Prior to the FCC vote, a Progressive poll showed that at least 70% of Americans requested guidance in better understanding "net neutrality." Of those that understood, over 65% opposed the feds regulating the Internet. Most Americans want less big government, not more.

Wheeler ignored concerns expressed by two commissioners and speedily put through the Title II regs. He provided a brief blog that was full of generalities and vagaries. Even after the FCC vote, yet another poll showed that most Americans didn't understand what was going on and, again, those who did were preponderantly against big government getting involved. Once again, the administration operated in a stealth rather than transparent manner.

The industry giants can benefit in yet another way. As was warned by Commissioner Pai, smaller industry businesses would be unable to participate in the Parity Program because they unable to bid up to what DISH could easily afford to do. While Wheeler might now modify the Parity Program (unlike a law, FCC regs can easily be changed, another weakness), why didn't he listen to Pai's advice weeks before the vote was cast? Pai more recently further expanded his concerns in another report:

We'll have to see who litigates. I suspect it might not be the giant ISPs; Comcast has already intimidated that while litigation was inevitable, they might not do so.

A federal court injunction might put a halt to all this nonsense, but I fear not before more adverse ramifications occur.

Fortunately many of our democratic allies observed short-comings inherent in the FCC Title II "net neutrality" regs and incorporated corrections in their own solutions.

I'm glad that Netflix and Mark Zuckerman have acknowledged their mistake in backing the FCC Title II reclassification. Google surely understood problems but stayed silent because it was intent on increasing its fiber optics market.